Debt Market Update

Reason for recent rise in yields in last 7-10 days

1. Foreign Portfolio Investors (FPIs) have redeemed their money and flight to safety assets from emerging markets like India. All are chasing dollar now.
2. Seasonal stress of March
3. Even lot of entities in lockdown and shoring up on cash.

Measures taken by government and future

1. Variable rate repo auction for INR.1,00,000 Crore in two traches as under: March 23,2020: INR.50,000 Crore & March 24,2020: INR.50,000 Crore.
2. The Reserve Bank has decided to advance the second tranche of purchase of Government securities under Open Market Operations (OMOs) for ₹ 15,000 crores to March 26, 2020.
3. Total Open market operation plan for this month is INR.30,000 Crore.
4. The Reserve Bank of India (RBI) announced that it will undertake a six-month US Dollar sell/buy swaps of $2 billion this month.

Investor Takeaways

1. Avoid AA, A and unrated papers even though they are offering high YTM as this present slowdown may increase the balance sheet stress.
2. Invest in AAA rated and sovereign papers with duration of 3-5 years.
3. 3-5 years AAA corporate instrument are trading at 250bps to repo and money market yields are trading at 150 bps to repo and hence we see opportunity here.

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